The IRS has been struggling to get wealthy taxpayers to file their tax returns, with tens of thousands of high-income individuals not complying with the agency’s efforts. A quirk in tax law makes it a misdemeanor not to file a return, but only a felony to file false returns, leading some millionaires to take their chances and not file. In early 2024, the IRS started contacting these high-income non-filers to urge them to file returns, resulting in additional tax revenue being collected.
While the IRS has made some progress, only a small percentage of the highest-income non-filers have filed returns so far. The agency’s limited resources and focus on pursuing felonies mean that misdemeanor non-filers are unlikely to face prosecution. The Treasury Department has proposed reclassifying certain non-filing offenses as felonies, with harsher penalties for wealthy individuals who repeatedly fail to file tax returns.
The lack of compliance by high-income taxpayers has a significant impact on tax administration and collection, shifting the burden of financing the federal government to other taxpayers. The Treasury believes that increasing criminal penalties for wealthy non-filers would serve as a deterrent to tax evasion, encourage voluntary compliance, and help close the tax gap. Despite efforts by the IRS and proposed changes in penalties, many wealthy individuals continue to avoid filing tax returns, potentially owing hundreds of millions in back taxes.
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